Capital Movements & Financial Regulation

In this lesson, you’re expected to learn about:
– international cooperation on capital movements and financial regulation
– the role of the European Commission in ensuring open capital movements
– the OECD Code of Liberalization of Capital Movements

Government and Politics

When you’re dealing with international finance, you have to be aware of not only your own nation’s international policies, but also the policies of at least one other nation, plus how each nation involved interacts with the others.

Compared to companies that operate on a purely domestic level, firms that operate internationally tend to be the target of more government concern as politicians attempt to cater to the needs of individual industries or adhere to some form of national idealism.

This concern may come in any number of forms, including regulations or requirements placed on foreign companies and protectionist policies put in place to restrict or hinder trade.

Here are a few examples:
1) Embargoes
2) Quotas
3) Tariffs

1) Embargoes 

Embargoes prohibit outright any goods from being imported at all, usually from a specific nation but sometimes broadly to specific industries. For example, businesses involved in defense, energy and telecommunications, as well as other areas critical to national infrastructure or safety, are often restricted to local companies or organizations with close ties to government officials.

2) Quotas

Quotas limit the quantity of a particular product that can be legally imported into a country.

3) Tariffs

Tariffs (sometimes referred to as duties) are taxes on goods being imported into a nation, which make them more expensive to foreign customers. Who bears the burden of the tax depends on whether any of the companies in the supply chain are willing and able to drop their price or forfeit profitability; otherwise, the end user sees the higher prices.

These concerns are relatively common for international companies, and each one limits the potential financial performance that a company can achieve within a nation.

But some governments enforce more unusual requirements as well:

1) Developing nations and those with more restrictive government control may require a minimum value of investment in order to operate within the nation. For example, a nation may require an investor or company to spend at least 1 million in order to start a company or purchase equity in a company.

2) Government regulations may require a company to recruit a minimum number of local nationals or maintain a minimum proportion of local nationals within the workforce. These regulations can impact workforce efficiency if meeting them requires the company to choose local nationals over those workers who may have more merit.

3) Government regulations may require a company to source raw materials from local companies, which can result in cost inefficiencies.

The world of international politics is highly dynamic and not always completely transparent, and so international companies have to keep up with relevant regulations and maintain a level of flexibility in all their international relations.

A Global Financial Market

The EU works with its international partners to develop consistent policies on the regulation of financial markets and capital movements.

In an increasingly globalized world market, national and international authorities have to work together to develop effective policies for regulating and supervising financial markets.

In particular, the recent financial crisis has emphasized the global interdependence of financial markets and the need for international cooperation.

2008 G20 Summit

The 2008 G20 summit in Washington agreed on a common roadmap for financial regulatory reform in order to tackle the global financial crisis and to ensure a level playing field.

The G20 also committed itself to fight against protectionism and to refrain from raising barriers to investment.

[Optional] Financial protectionism may signal a global trade war

The Role of the European Commission

Since the 2008 G20 summit, the intensity of international cooperation on financial regulation has increased and the EU has played a key role in this process.

The European Commission is working with its international partners to develop a consistent policy on the regulation of financial markets and capital movements, in particular by:

· taking an active part in the work of international forums and standard setting bodies
· developing bilateral regulatory dialogues with key partner countries
· promoting convergence with EU rules in the framework of the EU enlargement process

The Commission also works on the assessment and recognition of foreign regulatory frameworks in order to promote convergence with non-EU countries.

Most EU laws on financial regulation adopted in recent years include provisions that make it possible for the Commission to adopt equivalence decisions. These decisions recognize that the regulatory or supervisory regime of a certain non-EU country is equivalent to the corresponding EU framework.

OECD Code of Liberalization of Capital Movements

An open, transparent and orderly international system of capital flows underpins growth and stability. In an increasingly interconnected world economy, faced with episodes of heightened capital flow volatility, significant value is attached to a credible commitment mechanism that is sensitive both to the need to keep investment flowing but also to ensure financial stability concerns are addressed.A rule-based, co-operative framework for capital flow policies can help countries maintain market confidence and continue to attract the capital needed to support inclusive growth and sustainable development.

The OECD Code of Liberalization of Capital Movements provides such a framework.

– As an instrument that encourages cooperation, it has provided a tried and tested process for global dialogue for over 50 years.

– Currently adhered to by all 35 OECD countries (including 12 G20 countries), and open to adherence by non-OECD countries, the OECD Code is the sole multilateral agreement among State parties dedicated to openness and transparency in cross-border capital flow policies.

[Optional] OECD Code of Liberalization of Capital Movements

“Financialization” of the Global Economy

Globalization has undoubtedly brought significant benefits to economies and societies. From widely diffused productivity gains and a greater variety of goods at competitive prices for consumers, to lifting hundreds of millions of people out of poverty. These benefits have been underpinned both by trade and financial globalization supporting one another.

The latest OECD Business and Finance Outlook provides empirical evidence that restricting one can impede the other. The expansion of the global economy has benefited from deep, open and integrated markets for funding, liquidity and risk trading.

The benefits of these markets are shared by all participants in the system: sovereign governments, enterprises and individuals from any jurisdiction. Open and deeper international capital markets act as an international public good; they support a better risk allocation, they lower the overall cost of capital and they foster global liquidity.

Despite these benefits however, the liberalization of capital movements and financial markets have also produced numerous challenges such as the faster transmission of international shocks, credit and asset price boom-and bust cycles and abrupt reversals of capital inflows. This has also contributed to the so called “financialization” of the global economy.

The financial sector in most OECD economies has been characterized by high profitability and very high earnings that are above what employees with similar profiles earn in the rest of the economy. This premium is particularly large for top earners, contributing to growing income and wealth inequality.

Jim Rohn Sứ mệnh khởi nghiệp